“I too don’t understand why sovereign US debt (denominated in dollars) wouldn’t always be AAA-rated.”
At what point does common sense tell people that a debt that can’t be repaid, won’t be repaid?
If the existing liabilities are already un-payable, how can we maintain that new debt is rated AAA?
The US liability list is currently $60 or $70 trillion dollars and most of this is unfunded – our president is acknowledging trillion dollar per year deficits for the next 10 years taking our liabilities to the $70-80 trillion range
At the same time we have this mountain of unfunded liabilities, we have a major demographic shift occurring where 25% of our workforce wants to retire and enjoy their golden years
This demographic shift will open up jobs for younger generations but place a larger and larger burden on Social Security and Medicare programs
I read recently that future generations would have to be three times as productive as us and pay 100% of their earnings towards taxes to ever pay off this debt load
Obviously this isn’t going to happen so we are back to my underlying premise: a debt that can’t be repaid won’t be repaid
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The most recent default of US debt occurred in 1971 when Nixon closed the gold window on international trade – the world had little option other than to go along with that default – now there are options as China is demonstrating (as an aside, we are seeing history in the making here as China converts the yuan to the world’s reserve currency of choice – this type of change only occurs every 200 or 300 years)
